No, house hacking is perfectly legal as long as you comply with all local laws. Relevant laws include zoning ordinances, building codes, homeowners association (HOA) restrictions, and lender restrictions.
What is House Hacking?
House hacking is the strategy of renting out extra space in your primary residence.
By generating extra income via rent, a homeowner can partially or even completely offset mortgage costs, taxes, and the cost of utilities.
If you own a single-family home, this usually means that you’re renting out spare bedrooms. If you own a duplex or a triplex, this means renting out entire units.
Some house hackers earn extra income by renting out an accessory dwelling unit (ADU) on the property. Examples of ADUs include guest houses, garage apartments, and renovated sheds.
Restrictions Against House Hacking
Depending on where you’re looking to buy property and what type of property it is, there are several potential laws against house hacking that you should be aware of before you begin.
Local Zoning Laws
House hackers can face legal hurdles via local zoning laws.
Zoning laws dictate how land in specific municipalities can be developed and used.
-Multi-Family vs. Single Family Zoning for House Hacking
Local governments can legally designate certain neighborhoods for single-family housing, or multi-family housing.
If you’re planning to purchase a single-family home and convert it into a multi-family building, be sure that you’re not violating any local zoning ordinances.
A great way to avoid this is to purchase a duplex or a triplex in an area where multi-family housing already exists.
Since zoning laws can get pretty complicated, you should speak with a local zoning attorney if you have any doubt about the legality of your house hack.
In some instances, you may even be able to get a variance from the local government. This would allow you to add a unit to your property even if the area is zoned exclusively for single-family, detached houses.
Local zoning laws or regulations may also prohibit or place restrictions on short-term rentals.
This means if you’re planning to rent out your property for 30 days or less or if you’re using a vacation rental site like Airbnb, you need to really be careful not to break those laws.
Local Housing Codes
Housing codes are established by the local government as a means of setting safety standards for all properties in a given locality.
If you’re planning to make significant alterations to your property before house hacking, make sure that the renovations do not violate local codes.
Extensive renovations such as dividing a single home into multiple units can easily clash with local building codes.
Some common requirements include having multiple exits for each unit, a specific window height, and having a minimum number of closets per bedroom.
If you’re planning to make alterations that could conflict with safety standards, be sure to research local regulations and permit requirements before wasting precious money on illegal renovations.
It’s always cheaper to do things right the first time than to unwind a mistake.
If you’re looking to build a home from the ground up, you will be especially vulnerable to violating local building codes.
This also goes for the construction of ADUs, which are sometimes outright prohibited by local building codes.
Definitely speak with an experienced builder or someone who’s an expert in your local laws before assuming you can move forward with a project.
Homeowners Association Rental Restrictions
If your property is located in an area that is governed by a homeowners association (HOA), you are obligated to abide by their guidelines and restrictions.
Some HOAs will allow you to house hack with few or no restrictions. Others may prohibit short-term rentals or non-owner occupancy altogether.
For this reason, it is extremely important that you are aware of all applicable HOA regulations before closing on a property.
This is especially relevant if you are looking at a property in a condominium development. Condo buildings are usually overseen by HOAs that place restrictions on homeowners renting out their units.
Lender Restrictions Against Renting
House hacking is such a great investment strategy for beginners because it can usually be financed through an owner-occupied loan. These loans can be used to purchase a small property with up to four units and usually come with lower interest rates and down payments.
However, if you are taking out a mortgage to finance your house hack, be sure to note any lender restrictions.
Certain stipulations impact your ability to rent out extra space in your home.
If you defraud your lender by renting out the property against their restrictions, you could find yourself in serious trouble.
Luckily, lenders rarely prohibit homeowners from renting out their property after a certain period of time. Most restrictions are enacted to ensure that the property is in fact owner-occupied for the first year, or so.
Often, you’ll need to wait one year before renting out the entire property. During this time, you can typically still rent out extra space (so long as you live in the property too).
Definitely check with your lender before moving forward with a house hack.
Is House Hacking Allowed?
Yes, house hacking is allowed as long as you abide by all local zoning ordinances, building codes, homeowners association (HOA) guidelines, and lender restrictions.
The best way to ensure that you are in compliance with all relevant laws and not inadvertently violating local ordinances (or restrictions maintained by homeowners associations and lenders) is to consult a local attorney.
Better to ask now than to pay later.
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